EUR/USD – Steady as Markets Eye US Retail Sales

EUR/USD has dropped slightly on Wednesday, as the pair trades in the mid-1.17 range in the European session. The euro is struggling, as the common currency finds itself at 9-year lows against the US dollar. On the release front, French CPI posted a small gain of 0.1%. Later in  the day, the European Court of Justice will issue a preliminary ruling regarding the constitutionality of the ECB’s OMT program. Over in the US, today’s key events are Core Retail Sales and Retail Sales. The markets are expecting softer readings compared to last month’s readings.

US job numbers have looked sharp, and the trend continued on Tuesday, as JOLTS Jobs Openings climbed to 4.97 million, easily beating the forecast of 4.86 million. This is the indicator’s highest level since January 2001. The strong employment numbers are a welcome result of the robust economy, as the deepening recovery fuels demand for more workers. The health of the labor market is an important component of any decision to raise interest rates, so upcoming employment releases will be under the market microscope as the Fed mulls when to raise interest rates.

Will the ailing euro continue to point south? The New Year hasn’t brought much cheer to the common currency, which has recorded sharp losses so far in 2015. EUR/USD is currently at its lowest level since December 2005. With the Eurozone showing little growth or inflation, efforts by the ECB, including cutting rates to almost zero haven’t had the desired effect, and a sluggish Eurozone economy has meant a softer euro. The ECB may be forced to play its trump card, quantitative easing. This would involve the purchase of large amounts of Eurozone bonds, and would likely push the euro down even further. The markets are on a “QE watch”, waiting to see what happens at the ECB’s next policy meeting next Thursday.

Eurozone inflation levels remain anemic and the threat of deflation is growing. On the weekend, the Italian central bank warned about the risk of deflation to the Eurozone, and came out in support of a QE move by the ECB. French CPI gained 0.1% in December, the first gain in four months. Earlier this week, German WPI came in at -0.2%, its third straight decline and lowest reading in over a year. The ECB’s inflation target of about 2% is nowhere to be seen and the ECB has not been able to raise inflation, despite lowering interest rates to record lows of 0.05%. ECB head Mario Draghi has said that he will resort to QE if necessary, and we could see Draghi make this move at the ECB’s policy meeting on January 22.

EUR/USD for Wednesday, January 14, 2015

EUR/USD January 14 at 9:50 GMT

EUR/USD 1.1738 H: 1.1811 L: 1.1727

EUR/USD Technical

• EUR/USD showed little movement in the Asian session. The pair has posted losses in the European session, putting strong pressure on support at 1.1734.
• 1.1802 is an immediate resistance line.
• 1.1734 is under strong pressure. This line has held since December 2005, but could break during the day. 1.1634 is stronger.
• Current range: 1.1734 to 1.1802

Further levels in both directions:

• Below: 1.1734, 1.1634, 1.1525 and 1.1426
• Above: 1.1802, 1.1926, 1.2042, 1.2143 and 1.2286

OANDA’s Open Positions Ratio

EUR/USD is pointing to gains in long positions on Wednesday, reversing the direction seen a day earlier. This is not consistent with the pair’s movement, as the euro continues to post more losses. The ratio is close to a split between long and short open positions, indicative of a lack of trader bias towards where the pair is headed next.

EUR/USD Fundamentals

• 7:45 French CPI. Estimate 0.0%. Actual 0.1%.
• 8:35 European Court of Justice Ruling.
• 10:00 Eurozone Industrial Production. Estimate 0.0%.
• Tentative – German 10-year Bond Auction.
• 13:30 US Core Retail Sales. Estimate 0.1%.
• 13:30 US Retail Sales. Estimate 0.2%.
• 13:30 US Import Prices. Estimate -2.7%.
• 15:00 US Business Inventories. Estimate 0.2%.
• 15:30 US Crude Oil Inventories. Estimate 1.2M.
• 18:01 US 30-year Bond Auction.
• 19:00 US Beige Book.

*Key releases are highlighted in bold

*All release times are GMT

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